Rating agencies lowered
their expectations for 2003 GDP growth to 6.5% - 7.5%.
Most remain optimistic that Central government will
be able to contain the virus during 3rd Q and negative
impact on the economy will remain limited.

Central government has
acknowledged adverse impact of SARS on the economy and
announced sort of a rescue package, of which details
and significance remain unclear.

Impact on industries and companies

The mainland tourism industry so far remains the
biggest casualty. Dragonair's passenger numbers have fallen
to just 700 to 800 a day, compared with the 10'000 to
13'000 passengers it averaged this time last year. Air
China cut at least half of its regular flights during
the May Day holidays, a traditional transport peak. Quantas,
China Airlines, Cathay and Dragonair are seeking to delay
accepting aircraft they have ordered, suggesting that
widespread expectations that the region would provide
critical growth for the struggling global aviation industry
could be off course. In the service sector, companies
are lowering sales targets as consumer sentiment starts
eroding. Occupancy at leading Beijing hotels is below
10%. Restaurants are hurting badly.

The good news is that the negative impact has so far
been limited to the consumption/sales side, whereas most
manufacturing centers haven't yet been hit that
badly. "Nobody has reported an outbreak in a factory,
and we anticipate minimal impact on second-quarter earnings,"
says one analyst. This does not prevent companies from
drawing up contingency plans. Acer, Taiwan's biggest
computer vendor, is delaying plans to shift production
of notebook computers to China. Sony has instructed
all its 52 overseas factories to build up inventories
of audiovisual equipment components to cope with a possible
disruption of the goods distribution market. If other
major electronics companies follow Sony's lead, parts
demand and their prices may surge, dealing a blow to the
firms' earnings. Phil Murtaugh, General Motors
China president, says he has seen "no impact"
from SARS so far. ABB, the Swiss-based engineering
conglomerate, sticks by its 15%-40% growth targets this
year. "SARS or no SARS, if the intention by the government
is to continue to grow, there is a need for electricity,"
says Peter Leupp, chairman of ABB China.

Thousands of Beijing office workers have begun
tele-commuting to avoid the streets or crowded buildings.
Equipped with company-issued computers, employees set
up shop in their apartments, send their work in via e-mail
and call the office once or twice a day. Motorola
closed its Beijing headquarters after an employee was
diagnosed with SARS. Cleaners spent two days disinfecting
the premises. Local health authorities instructed that
the office should be closed for 10 days as a further precaution.

Impact on economy and forecasts

The Asia Development Bank cut its economic growth
forecasts for the region for a second time due to SARS.
While the bank estimated that growth in China would fall
by 0.2 percentage point to an annual rate of 7.3%, its
predictions for Hong Kong, Singapore and Taiwan are much
more pessimistic, with growth declining by 1.8, 1.1 and
0.9 percentage points, respectively.
The World Bank has lowered the China's economic
forecast this year from 8 to 7.5%. JP Morgan Chase predicts that China's economic
output will shrink by 2% in the second quarter of the
year. But it remains confident that overall, the country
will still grow at 7.4% this year.Morgan Stanley forecasts a 6.5% growth for the
year, mainly due to lost tourism revenues, the travel
ban on China, the decline in retail sales and the fall
in foreign direct investments.Goldman Sachs expects GDP growth to slow to 7%
this year, from the 7.5% forecast earlier, if SARS can
be brought under control by the end of July. If the manufacturing
sector was also affected, SARS could reduce annual GDP
growth to 6%.Credit Suisse First Boston lowered their full-year-growth
forecast to 6.9% from 7.3%.

Notwithstanding recurring cases of exuberant propaganda
("China's economic upsurge irreversible by SARS",
People's Daily, 10 May), the Government clearly
admitted that the economic loss caused by SARS was starting
to emerge. Economists at Peking University came out with
a report estimating that the mainland economy may only
grow between 6% and 7% this year, due to the fatal strike
on tourism, foreign trade and other related areas by SARS.
A leading government think-tank said the virus outbreak
could cost China up to USD17 billion in lost exports and
foreign investment, cutting 0.5 percentage points off
growth in GDP.

A survey by Deutsche Bank of 29 major multinational companies
found 88% of respondents felt FDI to China would
be affected by the delay in business trips due to SARS.
Many suggest that actual FDI inflows will be much less
affected than contractual FDI. 39% of the respondents
were concerned that disruption to supply chains due to
SARS might influence future investment decisions. Companies
that produce low-end electronic products are more concerned
than others. Investors from the oil, real-estate, auto
and health-care sectors appear unconcerned about this
risk, at least for the moment. (Dow Jones, 7 May)

For all the panic that SARS has generated, it has not
fundamentally undermined China's economy. China's
high growth in the first three months of the year will
almost surely give way to an awful second quarter. In
the long run China is likely to be resilient, as most
businessmen see the underlying fundamentals of growth
in China - a huge market that is quickly modernizing and
beginning to consume products, low-cost manufacturing,
bolstered with investment from government and multinational
firms - as extremely strong. (SCMP, 2 May) The biggest
wild card is whether the impact of SARS will spill
over into the manufacturing sectors, which are accounting
for 56% of Chinese GDP. So far, these sectors have been
resilient. The Pearl River delta, the heartland of China's
export economy, has maintained production throughout the
crisis, with no significant factory closures or loss of
orders to rival countries. The ability of exporters to
work through the outbreak is giving rise to guarded optimism
that China can contain its economic damage. (FT, 30 Apr)
The other big question is whether Beijing is able to control
the spread of SARS into interior provinces, where
hospitals aren't equipped to deal with a major epidemic.
If China's leaders succeed, most economists believe the
economy will bounce back quickly. But if SARS spreads
into China's countryside, growth is almost certain to
slow further, perhaps sharply. (WSJ, 29 Apr) Some economists
say a SARS-induced slowdown might not be such a bad thing
because it could give some parts of the economy, such
as the overheated real-estate sector, a breather.

Government measures to counter negative impact on the
economy

In a significant acknowledgment of the threat posed to
China's economy by the SARS crisis, the State Council
put forward some sort of an economic-rescue package
covering areas from rural industry to consumption. It
called for more investment and faster construction of
major schemes, and sought more input from treasury bonds
and budgetary construction funds for projects crucial
to the fight against SARS. The State Council stressed
industries such as automobiles, real estate, telecommunications
and Internet-related business should be cultivated as
engines for consumption and economic development. The
government also said that enterprises in SARS-hit areas
should not fire employees at will, while local governments
should provide assistance to those whose living conditions
have slipped below the minimum level due to SARS. There
are few details on these measures available, but it seems
safe to say that the Government very much relies on the
same instruments it has employed since 1997 in its efforts
to push economic growth. It remains to been seen, whether
throwing money down the same old alleys will do the trick.
There is also the problem that China's state-owned banks
are already sitting on an estimated USD400 billion in
bad loans and that Government debt has skyrocketed to
25% of total economic output this year (pre-SARS), from
a little more than 11% in 1997, the result of past government
efforts to keep growth strong.

The Ministry of Commerce announced the establishment
of an office to regulate the markets of goods considered
vital necessities in the prevention and treatment of SARS.
It also issued a circular to local departments in charge
of foreign trade and economic cooperation and state-level
economic and technological development zones, requiring
them to help foreign-funded enterprises prevent
SARS and maintain normal business operations.

The State Development and Reform Commission announced
the reduction of administrative fees levied on
some of the industries affected by the outbreak of SARS.
The reduction involves more than a dozen categories of
fees levied both by the central and local governments.
The beneficiaries include restaurants, hotels, trading
markets, and tourism, entertainment, civil aviation, road
transportation, water transportation, taxi and bus industries.
The fee reduction is effective from May 1 to September
30.

The People's Bank of China required commercial
banks to step up financial support for businesses that
produce or sell drugs and equipment used in fighting SARS,
and urged them to implement faster loan approvals. Furthermore,
the Central Bank is putting more new cash into circulation
and holding used banknotes for 24 hours before putting
it back into people's hands. Some banks are reported to
sterilize grimy bills and showering them with ultraviolet
radiation to try to kill any potential SARS virus.

A series of governmental policies was launched in Hangzhou,
Zhejiang Province, to help local enterprises pull through
the SARS crisis. The minimum taxable monthly sales volume
figure was increased to CNY5'000. Hotels, restaurants,
travel agencies, transportation and entertainment industries
are entitled to apply for tax reductions. Guangdong
Province published a series of preferential tax policies
aimed at supporting enterprises seriously affected by
SARS. The basis of business tax is lowered to varying
degrees and individuals will be free from income taxes
for their anti-SARS donations.

While Ministries are busy drawing up plans of how to
counter the negative impact of SARS, their new focus might
perversly create negative impact as it distracts them
from regular work. In addition, many government agencies
had SARS victims or suspected victims among their staff.
The result is a a near freeze in outside contacts and
a considerable fall-off in contract approvals, meetings
and negotiations with key ministries.

Last, but not least:SARS won't delay manned space
shot
After SARS appeared in some places in the country, the
manned space launch program used effective measures and
increased prevention work to assure that Shenzhou No.
5's launch would proceed in a stable and orderly way.
(People's Daily, 10 May) The message makes us feel
better, and it is significant in so many ways

Swiss-Sino trade

Swiss exports to China up 37.1%, January to March 2003
In the first quarter of 2003, trade between Switzerland
and China was CHF1.089 billion. Imports from China
to Switzerland stood at CHF573 million (down 4.1%), exports
to China at CHF516 million (up 37.1%), leaving only a
very small trade deficit in favor of China. Machinery
again took the largest share (55.0%) of total exports
with chemical and pharmaceutical products on second place
(19.1% of total exports). Watches continued their extremely
strong performance with 179.6% growth compared to the
same period of last year, meanwhile taking 9.1% of total
Swiss exports to China. Swiss exports to Hong Kong
increased 3.1% to CHF673 million during the same period;
imports from Hong Kong increased to CHF146 million (up
3.7%). In total, Swiss exports to China (incl. Hong
Kong) reached CHF1.189 billion, representing 3.87%
of worldwide Swiss exports. Imports were CHF719 million.
Swiss exports to Taiwan increased 12.2% to CHF302
million; imports from Taiwan went down -20.8% to CHF134
million. (Embassy of Switzerland, 10 May) See attached
data for details (pdf, 1 p., 11 kb).Notice: Trade figures are based on so-called
"Total 1" of foreign trade, not including precious
metals and stones, art objects and antiques.

War in Iraq

Mainland TV producer nets USD50 million order from Iraq
Sichuan Changhong Electric, has landed a USD50 million
contract to supply one million digital satellite colour
TV tuners to Iraq. The company will be the first on the
mainland to resume trade with Iraq after the war ended.
Iraq owes Chinese firms USD1.35 billion, of which USD880
million is for construction contracts and USD466 million
for imports. (SCMP, 7 May)

Economy

Official redefine jobless people
Chinese workers earning less than the local living allowance
will be categorized as unemployed and encouraged to find
new jobs, according to a new classification by the Ministry
of Labour and Social Security. China's unemployment rate
for the first quarter of the year was more than 4.1%.
The figure would have been much higher if people earning
less than the basic living allowance were taken into account.
(China Daily, 9 May)

SMEs greet financial backing
The head of the China Banking Regulatory Commission, Liu
Mingkang, said that SME funding will be a priority as
he restructures China's financial system. Institutional
investors, especially venture capital, will be cultivated
to provide start-ups with sufficient funds for their technology
and management initiatives. Opening a second board, resembling
NASDAQ, would help SMEs access public funding for further
growth needs, and ensure an exit for venture capital.
There are more than 8 million SMEs in China currently,
accounting for 99% of enterprises. SMEs contribute 60%
of China's industrial output, 40% of tax revenues, and
60% of total exports. SMEs also create 75% of China's
urban jobs. (Business Weekly, 8 May)

Export insurance to boom this year
A growing share of China's exports is likely to be insured
in the future, according to China Export Credit Insurance
Corporation (Sinosure). So far, only about 1% of the country's
total exports is covered by such insurance, compared with
the world average of 12%. (China Daily, 6 May)

Nation to map out development strategy for car industry
The State Development and Reform Commission is to invite
recommendations from the public and industry insiders
to help map out a new development strategy for China's
car industry. The advice is expected to be essential to
ward off blind investment and vicious competition and
lead to the healthier development of the industry. (Xinhua,
1 May)

Record joblessness in Chinese cities set to worsen
China's urban jobless rate rose to 4.1% at the end of
March - a 22-year high - and economists predicted it would
climb further, with waiters, sales clerks and tour guides
losing their jobs as consumers stay home and tourists
head elsewhere to avoid contracting SARS. Employment in
private companies grew by 2.1%, self-employed jobs expanded
by 5.8% from a year earlier, while employment at state-owned
companies fell by 1.1%. (SCMP, 1 May) Remember that
inofficial figures for urban unemployment are much higher.

China's emergence affecting trade patterns, growth in
Asia
The emergence of China as a major trading power has had
a significant impact on the pattern and growth of trade
in developing Asia, the Asian Development Bank said in
its new Asian Development Outlook 2003 report. The report
noted concerns that China, as an important producer and
exporter of wide-ranging manufactured goods, will displace
other economies in the region also exporting such goods.
However, it pointed out that other countries in the region
have benefited from the dynamism of China's mainland and
Hong Kong through rapid increases in trade and are in
aggregate net exporters to the two economies. (People's
Daily, 28 Apr)

WTO

China targeted in dumping probes
China's exports were the most heavily targeted in the
149 investigations into possible dumping initiated in
the second half of 2002, the WTO said. China was subject
to 27 anti-dumping investigations, compared to 29 during
the second half of 2001. Base metals including iron, steel
and aluminium products were the most affected sector,
followed by chemicals and plastics. (FEER, 15 May)

Government

China updates accounting for economic data
China plans to implement a "statement of national
accounts" rather than the production-based system
used since 1992 to calculate GDP growth. That system was
a hybrid of the old Marxist method for measuring the size
of a national economy by focusing on material production,
a method used since the Communist takeover of China in
1949. But as services become a greater part of China's
economy, the old methodology for calculating GDP has failed
to take proper account of this mainly privately owned
sector's contribution to growth. (Dow Jones, 9 May)

China Banking Regulatory Commission officially established
The China Banking Regulatory Commission, the country's
new banking watchdog, has been officially set up and started
its work. The commission will be responsible for monitoring
the operations of financial institutions, such as banks,
trust and investment companies, financial assets management
corporations and other deposit-related financial institutions,
and for safeguarding the legal interests of these entities.
(People's Daily, 28 Apr)

Finance

Rural reform of financing to speed up
The China Banking Regulatory Commission has given top
priority to rebuilding the rural financial system, which
has become weaker in recent years despite efforts to reform
it. In a bid to sharpen their competitiveness in the face
of fierce foreign competition, China's four State-owned
commercial banks have withdrawn from most counties and
rural areas to refocus on more profitable operations in
the big cities. This has left the burden of financing
agricultural needs with rural credit co-operatives. But
the rural credit co-operatives are already in dire straits.
Their non-performing loans stood at CNY515 billion at
the end of last year, a staggering 37% of their total
outstanding loans. (China Daily, 10 May)

China's 2002 current account surplus widens to USD35.42
billion
China's current account surplus more than doubled to USD35.42
billion in 2002 from USD17.41 billion in the previous
year, reflecting the country's strong export performance.
China maintains tight controls on its capital account
and its currency is mainly convertible on the traded account.
This allows the government to carefully monitor foreign
direct and portfolio investment in China as well as offshore
capital flows. (Dow Jones, 9 May) The accounts indicate
the staggering amount of USD7.79 billion in "Errors
& Omissions" (outflowing). So much for tight
control

China unlocks pension fund
Fund managers expect the National Social Security Fund
to spend more than CNY20 billion of its CNY124 billion
of reserves to buy stocks and bonds, as part of a strategy
to boost returns. The NSSF was set up in 2000 to plug
the shortfall in provincial social security systems with
state-allocated funds and proceeds from the sale of state-owned
shares. A 2001 Bank of China International report estimated
the country's unfunded pension debt at USD850 billion,
or 80% of China's GDP in 2000. (SCMP, 9 May)

Citibank gets a bigger toehold
Citibank secured the right to raise its stake in China's
Pudong Development Bank to a quarter by the end of April
2008. If exercised, the option would give Citibank an
unprecedented foothold in a largely untapped market of
USD1.2 trillion in personal savings on the back of mid-sized
Pudong Bank's 272-branch network. No foreign player now
owns more than 10% of a domestic lender. (FEER, 8 May)

CDB planning loan guarantees
China Development Bank will implement a loan guarantee
service for Shanghai's small and medium-sized enterprises.
The service is expected to be expanded to other major
Chinese cities. It is also an indication of the central
government's determination to increase financial support
to China's SMEs, which are having a difficult time finding
sufficient loans. Shanghai's more than 218'000 SMEs provide
more than 5.4 million jobs, and they employ 80% of Shanghai's
labourers. (Business Weekly, 2 May)

Opening of China's A-share market delayed
With regulators turning their attention to efforts to
reduce the spread of SARS, the opening of China's A-share
market to foreign investors appears to be delayed. Analysts
said that the postponement was unlikely to have an impact
on the amount of foreign investment queuing up for the
stock market. Even without SARS, the onerous timetables
for repatriating capital has kept many foreign investors
away. (Dow Jones 30 Apr)

ABN Amro raises USD320 million in China fund
ABN Amro's fund management joint venture in China has
raised USD320 million from the launch of its first China
sector product. The Dutch bank and its partner Xiangcai
Hefeng were pleased with the result of the launch, achieved
despite the difficult trading conditions customary in
the A share market and the uncertainty caused by SARS.
(FT, 29 Apr)

BOC, PWC face fraud charges
The Bank of China and PricewaterhouseCoopers are facing
charges of fraud for their alleged involvement in the
liquidation of Tele-Art, a bankrupt consumer products
components maker, once listed on Nasdaq. The lawsuit is
the latest in a string of scandals involving BOC and the
accountancy sector. (SCMP, 28 Apr)

Business

DaimlerChrysler in talks about JV
DaimlerChrysler is in talks with Beijing Automotive Industry
Corp. and Southeast (Fujian) Motor Corp. about setting
up joint ventures to produce cars and trucks in China.
(FEER, 15 May)

Internet portals again boost profits
After posting their first quarterly profits last year,
China's top Nasdaq-listed portals - Sina.com, Sohu.com
and Netease.com - built on that breakthrough with first-quarter
profits this year. More than half of revenues for all
three companies came from their SMS offerings for mobile-phone
users. (FEER, 8 May)

Jet production set to start in China
Shanghai Aviation Industrial (Group) Corp. will begin
production of the country's first self-designed regional
jet this year. The ARJ21 is expected to make its debut
flight in three to four years. The new jet will enter
service at the end of 2006 or early 2007. (People's Daily,
7 May)

Weak US dollar hits Volkswagen in China
The weak US dollar is buffeting Volkswagen, whose business
in China is highly susceptible because of the yuan's link
to the greenback. While Volkswagen's US sales are significant,
its Chinese business is even more vital to its future.
VW is not able to remit home Chinese earnings, but they
do show up in its accounts, and parts sales to the Chinese
plants are a big revenue source. (Deutsche Presse-Agentur,
5 May)

Motorola faces tough time in China
Motorola Inc will have to work harder to keep its market-leading
position in China amid a growing challenge from local
competitors. However, Motorola might be fighting a losing
battle as a growing number of competitors clamour for
a piece of the market, and are willing to sell phones
at rock-bottom prices. (Business Weekly, 2 May) Another
case of bad "China Dream" in the making?

Parmalat bails out of China milk market
Italian dairy giant Parmalat has followed two other multinationals,
Kraft Foods and Danone Group, in withdrawing from China's
milk market because it can not compete with domestic rivals.
(SCMP, 28 Apr)

Energy

Oil companies spurn Goverment foreign oil policy
Chinese oil companies are ignoring a government policy
aimed at offsetting the country's widening oil deficit
through acquiring foreign oil assets and shipping the
crude back home. Chinese companies have been on a major
buying spree, taking stakes in oilfields around the world.
However, they are selling their "foreign" oil
in local or international oil markets, hindering China's
plan to build up a strategic oil reserve. (Dow Jones,
29 Apr)

Beijing

Office, luxury apartments meet bleak spring
Beijing's office and luxury apartment market continued
falling in the year's first quarter, amid indicators oversupply
of office buildings will affect the market in 2005 or
2006. Office vacancy rates in Beijing increased slightly,
from 15.3% in the fourth quarter 2002 to 15.7%. The overall
rent level of luxury apartments was USD27.5 per square
metre, down 3.8%. Facing rising vacancy rates, the Beijing
Municipal Government has encouraged more foreigners to
buy properties in the capital. A new policy allows senior
foreign officials to receive a personal income tax return
of up to 80% of the amount they paid to Beijing in the
year before they purchased their property. (Business Weekly,
2 May) Thanks for those foreign devils

Shanghai

New Shanghai retail giant
Shanghai brought four of its largest retailers under one
company to prepare for battle with foreign chains like
Carrefour and Wal-Mart. The newly created Bailian Group
is China's top retailer with annual revenues of more than
CNY70 billion, assets of CNY28 billion and outlets in
more than 20 provinces. (FEER, 8 May)

Foreign capital rises in April
April's foreign investment in Shanghai grew by 27.8% from
the previous year, but slower than the first quarter growth
rate of 59.2%. Shanghai drew USD917 million in contracted
FDI and approved 520 investment projects. From January
to April, the city landed 1'504 foreign investment projects
and lured USD4.3 billion in contracted funds. (Shanghai
Daily, 3 May)

Shanghai limits luxury housing to cool down overheated
market
Shanghai will limit the number of new luxury housing projects
this year after officials called for measures to cool
the overheated property market. Local residents complain
that property speculation has driven home prices beyond
the reach of many households. More than half the people
buying high-end housing in Shanghai come from overseas
or outside the city, many with an eye on investment. (SCMP,
30 Apr)

Pearl River

Number of overseas visitors to Guangdong Fair declined
The 93rd China Export Commodities Fair (April 15 to 30)
scored USD4.42 billion worth transactions. 23'128 businessmen
from 167 countries and regions had participated in the
fair. The Secretary General of the Fair admitted that
the number of overseas visitors to this year's fair declined
noticeably compared with last year. However, he pointed
out that the trading efficiency was much higher. (Xinhua,
1 May) In spite of "increased trading efficiency",
the transactions were hardly more than 20% of least year's
result.

Guangzhou to pump huge investment into auto industry
Guangzhou plans to invest CNY5 billion for the growth
of its automotive industry and to build itself into the
biggest producer of finished vehicles and auto parts in
southern China. (People's Daily, 28 Apr)

Various

China labor leaders sentenced on subversion charges
Two labor activists who led some of China's biggest protests
in 50 years were sentenced to prison on subversion charges.
The men were arrested last year after protests by tens
of thousands of laid-off workers demanding better benefits
from bankrupt state-owned factories. (AP, 9 May)

Warmer climate may derail Tibet railway
Global warming may prove the latest problem for designers
and builders of the Qinghai-Tibet Railway. The frozen
earth of the Qinghai-Tibet Plateau is degenerating because
of global warming and the increase in human activities
in the region. (China Daily, 2 May)

China-based U.S. companies cry foul over visa issuance
policy
U.S. companies in China say they have become an unintended
victim of ongoing efforts to bolster U.S. homeland security
against the threat of terrorism. Tighter U.S. visa requirements
imposed after the Sep. 11, 2001, terrorist attacks hurt
the ability of U.S. companies to secure visas for Chinese
nationals needed in the U.S. to conclude commercial deals,
undergo training on purchased U.S. equipment as well as
attend business development and strategic planning meetings.
(Dow Jones, 30 Apr)

Weekly
Market update

30
April 2003

25
April 2003

Shanghai A

1579.48

1555.84

Shanghai B

117.75

118.05

Shenzhen A

440.73

437.03

Shenzhen B

211.91

210.67

Hong Kong Red Chip

898.78

847.97

Hong Kong H

2199.60

2088.17

Source:
South China Morning Post

China Business Briefing is a random selection of business related news
gathered from various media and news services covering China, edited by the
Embassy of Switzerland in Beijing and distributed among Swiss Government
Offices and other interested parties. The Embassy does not accept
responsibility for accuracy of quotes or truthfulness of content. Upon
request and depending on the resources available, the Embassy will provide
further information on the subjects mentioned in the China Business
Briefing.vertretung@bei.rep.admin.ch